Qantas to shelve Asia premium airline plan: report

SYDNEY - Australian carrier Qantas is set to shelve its controversial plan to set up a joint-venture premium airline based in Asia due to the economic turmoil in Europe, a report said Monday.

The Australian Financial Review said that after a year of planning for the capital-intensive project based in either Kuala Lumpur or Singapore, executives had now decided to focus on a lower risk alliance with Malaysia Airlines.

It said Qantas and the Malaysian airline were working towards a letter of intent for the new partnership.

This would include a code-sharing alliance which is expected to allow joint marketing, scheduling and pricing six to nine months after an agreement is reached.

The newspaper added that talks with the Singapore government would cease, citing unnamed sources.

Qantas told AFP no decision had yet been taken.

"It's speculation. There has not been any decision yet and we remain in negotiations with Singapore and Malaysia," a spokesman said.

The announcement in August of plans to establish a premium Asian airline sparked a fierce backlash from unions concerned at the outsourcing of jobs, which culminated in Qantas grounding its entire fleet in October.

The government's industrial relations umpire was forced to step in and, with unions representing pilots, engineers and ground staff unable to resolve their disagreements with the airline, the dispute is now heading to arbitration.

While the premium airline plan has apparently been shelved, the Financial Review said it could be brought back to life when economic conditions improve with Tony Fernandes, head of budget carrier Air Asia, a willing investor.

It added that the hook-up with Malaysia Airlines would mirror Qantas's relationship with British Airways.

As part of the deal, Qantas would likely recommence flights to Kuala Lumpur and gradually shift its central Asian hub to Malaysia from Singapore.

Partner British Airways would also reorient its focus in the region to the Malaysian capital, the report said.